Wednesday, November 24, 2004

Even as millions of consumers are solicited into MLM and then quit after losing money, most do not understand why they lost. They are shown the luxurious lifestyles of the top promoters and are told that "anyone can do it." The promoters convince them that they personally "failed" and that it was "their own fault." Most have no idea of the sheer scale of people joining, losing and then quitting. They are led to believe that they are unusual in their "failure." Consequently, they not only do not complain to the government authorities but they do not even warn friends or relatives to stay out of MLM. Shame and disappointment are covered up with silence. The recruitment program continues largely unabated.

As has been previously illustrated, the massive failure rates among those who invest in MLMs have almost nothing to do with the individual recruit. These multi-billion-dollar consumer losses are due to the pyramid business model. Retailing is unfeasible and the recruitment-based income plan is designed so that most will lose. It cannot be otherwise. For a few to win, basic mathematics requires all others to lose. "Anyone" cannot do it.

The "endless" chain schemes do not, of course, go on forever. Nor do they continue until they quickly exhaust all possible new recruits. While the schemes are structured as endless chains and make promises to new recruits as if they were "limitless" and could fulfill the promise of success to all, in practice, the chain keeps breaking at the bottom and being "repaired." Large-scale failure is, in fact, necessary. If most did not quit, but continued to recruit, the earth would soon be entirely filled with MLM distributors in a very short period of time.

The way the mathematical limitation works itself out is in the pattern of dropouts. Nonretailing MLMs don't fully or quickly saturate areas with members because most people quit within a year. All such schemes experience a 50-75% annual dropout rate. Dropouts thwart the recruitment process at the lower levels. The people trying to build the downline are always dependent on others below to "duplicate" the process. When their new recruits become discouraged and drop out, the rebuilding process must start yet again. And while the hopefuls engage in this constant rebuilding effort, they are also continuously paying money to the scheme and its organizers - in product purchases, training fees and marketing costs - as well as incurring other normal business expenses.

With its ongoing operation, continuous enrollment of excited new recruits and public displays of wealth and success by the organizers, the organization appears to the uninformed as viable, stable, and successful. Most schemes can go on for many years by successfully recruiting new people to refill the bottom ranks, which become open as past recruits quit the business in "failure."

1 Comments:

all non-pins (99.4% of distributors) 451,830 distributorsearn $697.51 per year

He then says they earn $13.41 per week -- before product purchases and expenses.__________I think this number is way off. If you understand the pyramid, then you know people can't earn money by paying a price premium that is returned back to them. Robert says elsewhere that even Amway admits less than 20% of the product is sold outside the pyramid. The only intelligent way to look at MLM is to factor this into the equation. Over 80% of that $13.41 is not money earned, it is just pyramid money cycling around. So the real number must be less than $2.68 per week in money earned. Probably way less if you understand some of the other Amway numbers. This is huge difference and a major flaw in his analysis of MLM.